At the end of the week The Great British Pound proved was the star performer. The EUR/GBP didn’t set a new correction low (contrary to what happened in EUR/USD) and even gained a few ticks from the reaction low. On Friday morning, expectations were for more consolidation as there was no high profile news on the agenda in Europe or in the UK. Indeed, the pair hovered in a tight sideways range in the lower 0.79 area for most of the morning session. At mid day the BoE announced the details of its new lending scheme. The news coverage on this report had no noticeable impact on the currency.
However, during the afternoon trade, activity shifted into a higher gear and repositioning started with Sterling the main beneficiary. There were all kinds of rumors on big orders and M&A related activity. At the same time, EUR/USD drifted lower, too. EUR/GBP dropped from the 0.7900 area to the 0.7865 area. As the week drew to a close, the dollar was sold, both against the euro and sterling. EUR/GBP spiked temporary higher again, but finally cable outperformed EUR/USD and EUR/GBP drifted to new correction lows. The pair closed the session at 0.7865, compared to 0.7910 on Thursday evening. Early this morning the Rightmove house prices dropped by -1.7%, but without implications for the GBP. EUR/GBP is holding near the recent lows. The calendar remains empty in the UK.
The Great British Pound had a strong run and EUR/GBP dropped below several support levels. As is the case for EUR/USD, the euro downtrend against sterling is well in place. At the end of last week, we had the impression that the decline of the euro was slowing in EUR/USD and in EUR/GBP. At least for the latter, this hypothesis was not confirmed on Friday.
That said, there is doubt that Cable will be able to continue its outperformance. The fundamental euro negative bias continues to hold, but in a day-to-day perspective, there might be room for some consolidation or even a cautious countermove. Short term profit taking/stop loss protection can be considered.
The pair tried several times to regain the 81.00 area, but without sustainable results. Finally, EUR/GBP dropped below the 0.7950 range bottom. This break opens the way to the next high profile support, in the 0.77 area (Oct 2010 lows). The pair is oversold, suggesting that the decline might shift into a lower gear short-term.